How low retention of customers and suppliers bankrupted Homejoy

Only about a quarter of Homejoy’s customers continued to use the service after the first month, and less than 10% used it after six months. Many first-time customers were not satisfied with the cleaning, or experienced a last minute cancellation.

Cleaners who excelled would sometimes strike independent relationships with clients. This often resulted in a pay increase, and some cleaners even attracted enough new clients to start their own small cleaning businesses.

Meanwhile, Homejoy’s cost of customer acquisition was crippling. By mid-2014, thousands of people were scooping up deeply discounted first time Homejoy cleanings for $19.99 on daily deal sites like Groupon. The company offered these aggressively even though its own internal data showed most of these people never used the service again.

By focusing on growth above all else, other projects to boost retention and reduce costs fell to the wayside.

Notes:
(1) Thank you Zach Abramowitz, founder and CEO of ReplyAll, for the tip.
(2) Homejoy is a striking example of a company which scaled customer acquisition before achieving sufficient product quality, ie. basic product-market fit. The tell: poor customer satisfaction, low repeat usage, and high churn.
(3) See: The most fatal mistake to avoid as a startup